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Chorus CEO McKenzie to leave this year as operating earnings decline as expected

Monday 26th August 2019

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Chorus chief executive Kate McKenzie will leave the telecommunications lines company at the end of 2019, having overseen the completion of the ultrafast broadband fibre network's first tranche. 

The announcement comes as the network operator reported a 2.6 percent decline in operating earnings - in line with expectations - while net profit dropped 38 percent on rising depreciation costs and a bigger interest expense. 

Chair Patrick Strange said McKenzie had told the board she wanted to return to Sydney at the end of the year and that directors have been considering a succession plan for some time. Internal and external candidates are in the running for the job. 

"Kate and the board are committed to an orderly transition, as she remains focused on maintaining the progress made to date and leading the excellent leadership team that is in place, while her successor is selected," Strange said. 

Chorus reported a net profit of $53 million in the 12 months ended June 30, down from $85 million a year earlier, due largely to an extra $20 million of depreciation costs at $300 million and $175 million of finance expenses, up from $151 million. 

Earnings before interest, tax, depreciation and amortisation fell to $636 million from $653 million on a 2 percent decline in revenue to $970 million. That was in line with guidance of $625-645 million. 

While the company is targeting modest ebitda growth for the June 2020 financial year, it has kept earnings guidance unchanged at $625-645 million. 

"We want to keep connecting as many customers to fibre as fast as we can, while continuing to do everything we can to keep improving customer satisfaction. Despite some of the competitive challenges we face, particularly the decline in voice-only connections, we remain focused on returning to modest ebitda growth in FY20," McKenzie said. 

The network operator's fixed-line connections fell to 1.45 million as at June 30 from 1.53 million a year earlier, tracking the decline in traditional voice services and copper connections. Broadband connections increased to 1.2 million from 1.19 million, driven by fibre uptake at 610,000 from 445,000 a year earlier. 

Chorus sees declining copper connections as an opportunity to cut maintenance costs and capital spending. Its executives have started planning for areas that will start being switched off. 

Capital spending of $804 million in the year was less than expected and the network operator has passed the peak expenditure on the programme. It forecasts capital expenditure of $660-700 million in the 2020 year, of which $550-580 million is expected to be spent on fibre. 

The board declared a final dividend of 13.5 cents per share, payable on Oct. 8 to registered shareholders on Sept. 24. That's up from 13 cents a year earlier and takes the annual payment to 23 cents. 

The company expects to pay dividends totalling 24 cents in the 2020 year. The board expects modest increases in the payout over the next couple of years, and will update its policy once the Commerce Commission finalises future regulated income streams. That's expected in June 2021. 

The shares last traded at $5.14 and have increased 6 percent so far this year. 


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